Comments of Joseph Bast, July 16, 2002

Comments of

Joseph Bast, President of The Heartland Institute

on New Source Review Reform

Respectfully submitted to be placed on the record

in connection with the joint hearing on July 16, 2002 of

the Senate Committee on Environment and Public Works

and the Senate Judiciary Committee

Submitted by:

Joseph L. Bast

President

The Heartland Institute

19 South LaSalle, Suite 903

Chicago, IL 60603

Phone: 312/377-4000

Email: jbast@heartland.org

To: Chairman James Jeffords, U.S. Senator from Vermont

Chairman Patrick Leahy, U.S. Senator from Vermont

Gentlemen:

I respectfully add my voice to those of many who believe the New Source Review Program requires substantial and immediate reform.

The Heartland Institute is a national nonprofit research and education organization based in Chicago. Since our founding in 1984, we have produced research and commentary on a wide range of public policy issues, including environmental policy. Since 1998, Heartland has published Environment & Climate News, a monthly newspaper devoted to covering environmental news.

Because of the importance of New Source Review reform, I assembled a three- person team to study the Environmental Protection Agency=s June 13, 2002, New Source Review: Report to the President, and to produce a Heartland Policy Study evaluating its findings and recommendations. The team consisted of Heartland=s Science Director, Dr. Jay H. Lehr, editor of McGraw-Hill=s Standard Handbook of Environmental Science, Health, and Technology (2000); the managing editor of Environment & Climate News, James Taylor; and myself. My bio and Dr. Lehr=s appear at the end of these comments; past issues of Environment & Climate News featuring Mr. Taylor=s reporting can be found on Heartland=s Web site at www.heartland.org.

Our complete evaluation runs to some 23 pages and can also be viewed on The Heartland Institute=s Web site at www.heartland.org. Printed copies are available by calling 312/377-4000. We found:

< EPA accurately described instances where current NSR policy has discouraged investments needed to improve productivity and plant safety, even when those investments would reduce emissions of pollutants.

< EPA=s recommended reforms would remove counterproductive policies without harming air quality.

< EPA=s recommendations and some of the ideas that apparently will be part of President Bush=s AClear Skies Initiative@ represent progress in bringing one of the nation=s least effective environmental regulations up-to-date.

Following is a more complete summary of our evaluation.

What the Report to the President says

EPA=s Report to the President summarizes extensive public comments and previous EPA reviews of NSR enforcement policies, along with case studies showing how current NSR enforcement policies have had negative effects on businesses, workers, consumers, and the environment. EPA identified three areas where reform is needed:

< EPA=s uncertain and increasingly narrow interpretation of the Aroutine maintenance, repair and replacement@ exclusion.

Consistent with Congress=s intent, EPA until 1999 generally excluded Aroutine maintenance, repair and replacement@ (RMR&R) activities from the NSR permitting process. As early as 1988, though, EPA began to challenge the meaning of Aroutine,@ subjecting or threatening to subject more activities to NSR than before.

The Report to the President concludes that Aconcern about the scope of the routine maintenance exclusion is having an adverse impact on [utility] projects that affect availability, reliability, efficiency, and safety.@ Concerning nonutility companies, EPA says Aconcern about the scope of the routine maintenance exclusion is having an adverse impact on industries outside the energy sector. It also is credible to conclude that projects have been discouraged that might have been economically and/or environmentally beneficial without increasing actual emissions.@

< EPA=s substitution of Aactual-to-future-potential@ for Aactual-to-future-actual@ in estimating likely changes in emissions.

In 1996, EPA changed the way it estimates the effect of facility modifications on emissions for nonutility emitters from Aactual-to-future-actual@ to Aactual-to-future-potential,@ which means the decision to apply NSR is determined by the emitter=s Apotential to emit@ rather than the actual change in emissions likely to occur.

In its Report to the President, EPA concluded Athe current NSR program is having an adverse impact on energy efficiency by discouraging projects that may improve energy efficiency, or may increase capacity and reliability without actually increasing pollutant emissions. In some cases it may be discouraging projects that decrease emissions because of the >actual-to-potential= test used for these industries.@

< Emissions from de-bottlenecking and aggregation.

Originally, EPA ruled that only the direct effect on emissions from the unit being modified would be considered in determining whether an NSR permit was required. More recently, EPA has moved to a more expansive definition under which ancillary increases in emissions from unmodified but Ade-bottlenecked@ units must be included. EPA is also combining separate projects and claiming the aggregate effect on emissions is sufficient to trigger NSR.

EPA=s reform recommendations

When it released its Report to the President, EPA also issued seven recommendations for NSR reform. The first four were proposed by the Clinton administration in 1996 but never implemented:

< Plantwide Applicability Limits (PALs). Regulated emitters would be allowed to modify their plants without obtaining a major NSR permit provided their emissions do not exceed a plantwide cap based on an actual emissions baseline. Such APlantwide applicability limits@ (PALs) would effectively expand the RMR&R exclusion and resolve conflicts over de-bottlenecking.

< AClean unit@ exclusion. Regulated emitters who achieved federal BACT or LAER control levels or comparable state minor source BACT since 1990 would be entitled to a Aclean unit exclusion@ from NSR. A clean unit would trigger NSR only if permitted allowable emissions increase.

< Exclusion for pollution control and prevention projects. Modifications that result in a net overall reduction in air pollutants, including when an emitter switches to a cleaner-burning fuel, would be excluded from NSR, subject to certain conditions. Caps on emissions under the National Ambient Air Quality Standards program and other programs would remain in place.

< Return to actual-to-future-actual methodology. The Aactual-to-future-potential@ emissions test would be replaced with the previously used (and still used for utilities) Aactual-to-future-actual@ test, which is a more realistic calculation of future emissions. Only emission increases caused by a given modification would be considered. The baseline for calculating current actual emissions would be the highest consecutive 24-month period within the immediately preceding 10 years.

Three additional reforms of NSR recommended by EPA would need to go through the formal rulemaking procedure (including public comment) before being implemented. They are:

< More objective definition of the RMR&R exclusion. EPA proposes to set cost-based thresholds below which projects would automatically qualify for the RMR&R exclusion. The thresholds would be set on an industry-by-industry basis and would exclude costs incurred for installing and maintaining pollution control technology.

< De-bottlenecking. EPA proposes to clarify that, when calculating actual emissions associated with a modification, emitters generally will need to look only at the unit undergoing the change. Emissions from units Aupstream@ or Adownstream@ of the unit being changed would be considered only when the permitted emissions limit of the upstream or downstream unit would be exceeded or increased.

< Aggregation. EPA proposes to consider modifications to be separate and independent projects unless they are dependent upon another project to be economically or technically viable or the project has been intentionally split from other projects to avoid NSR. EPA says it Agenerally would defer to the States to implement the Agency=s aggregation rule.@

Evaluation of EPA=s recommendations

Since 1980, EPA has released some 4,000 pages of Aguidance@ and produced many (often conflicting) letters and several proposals for NSR revision, none of them finalized. Testimony to EPA contains many reports by industry spokespersons alleging that EPA has frequently and substantially changed its enforcement policies without going through the formal (and legally required) rulemaking procedure, causing considerable uncertainty within the regulated community.

We found these reports to be credible and uncertainty to be justified. Current policies plainly have the unintended consequences of discouraging worthwhile investments and maintenance activities that would benefit companies and consumers as well as the environment. Many of these investments and activities were once correctly understood to be outside the scope of NSR, and ought once again be put beyond NSR=s reach.

EPA=s recent enforcement of policy reinterpretations has forced companies to count imaginary emissions from previously unused capacity in determining whether a repair or other moderation would cause a significant increase in emissions. As a result, under current rules most repair projects would trigger a full New Source Review, even if actual emissions decrease as a result of the modification. Given the cost of complying with the NSR permitting process, many companies choose not to upgrade and modernize plants or even make routine changes and repairs. Efficiency improvements that would have reduced emissions and energy consumption or improved worker or community safety have been foregone.

The NSR policy changes recommended by EPA, if put into practice, would not compromise air quality. We are skeptical that NSR has had a major positive effect on air quality since 1977, since air quality was improving prior to that year and other air quality regulations were responsible for much larger emission reductions than can be traced to the NSR program. Predictions that NSR reform would result in substantial increases in emissions strike us as partisan rhetoric, not analysis. The air quality goals and standards for protecting public health and the environment remain intact, and those aspects of the current program that unintentionally increase emissions by discouraging investments in energy efficiency would be avoided.

EPA=s proposals would fix some of the biggest problems encountered by an aging, inefficient, and expensive environmental regulatory program. Replacing the program outright as it affects utilities with the AClear Skies Initiative,@ as also proposed by the Bush administration, would be a further step in the right direction, though judgment must be reserved until legislation for the Initiative is made public.

The country would be better served if NSR were changed to clarify and make more certain the scope of the routine maintenance exclusion and the method used to measure future emissions. Even better would be a move away from the costly and often counterproductive style of end-of-the-pipe regulation represented by NSR.

Conclusion

Everyone agrees that clean air is one of the most important rights of American citizens and goals of national environmental policy. The failure to apply common sense to the New Source Review program, though, has burdened American consumers and American industry with higher economic costs and higher levels of pollution than were envisioned by Congress when it wrote the Clean Air Act amendments of 1977. As EPA itself now admits on pages 31-32 of its Report to the President,

Our findings in this report ratify a longstanding and broadly‑held belief that parts of the NSR program can and should be improved. For example, we conclude above that changes to NSR that add to the clarity and certainty of the scope of the routine maintenance exclusion will improve the program by reducing the unintended consequences of discouraging worthwhile projects that are in fact outside the scope of NSR.

NSR was adopted at a time when forecasts of a Apost-industrial era@ were naively thought to justify anti-manufacturing policies. Balancing costs against benefits was thought to be unnecessary, and the effects of regulations on the incentives of regulators and members of the regulated community alike were poorly understood and often dismissed as unimportant.

Since 1977, air quality, technology, and regulatory theory have improved dramatically, creating new opportunities to more cost-effectively protect air quality. Investors, too, have rediscovered the inherent value of companies that manufacture real goods and services, and the negative impact that defective regulations can have on global competitiveness.

It is entirely appropriate, at this time in U.S. history, to re-examine the rules and regulations known to be ineffective or damaging to the manufacturing sector of the country=s economy. EPA=s recommendations and the Bush administration=s Clear Skies Initiative are good places to start, but they do not mark the end of the need for reform.

Thank you for this opportunity to submit my comments to the record. Please do not hesitate to contact me or members of my staff if I can be of any assistance to your Committees or to you and your staffs.

Joseph L. Bast

President

The Heartland Institute

July 16, 2002

Brief biographies of Joseph Bast and Dr. Jay Lehr follow.

Heartland Biographies

Joseph L. Bast

President and CEO

Joseph Bast is President and CEO of The Heartland Institute, a nonprofit, nonpartisan center for public policy research located in Chicago, Illinois. He was the first employee of this organization when it started in 1984, and has overseen its growth from an annual budget in 1984 of $20,000 to spending and receipts of approximately $2 million in 2002.

Mr. Bast founded and was editor and publisher of Intellectual Ammunition, a bimonthly public policy magazine, as well as three monthly publications: School Reform News, Environment & Climate News, and Health Care News. All four publications are sent to all 8,000 state and national elected officials in the U.S., as well as to tens of thousands of grassroots activists nationwide.

Mr. Bast has cowritten or edited six books, including Eco-Sanity: A Common-Sense Guide to Environmentalism (1994, 1996), which won the Sir Antony Fisher International Memorial Award. His writing has appeared in The Wall Street Journal, USA Today, Chicago Tribune, Crain=s Chicago Business, Investor=s Business Daily, and elsewhere.

A popular public speaker, Bast has addressed the National Conference of State Legislatures, Southern Legislative Conference, the Annual Clean Coal Technology Conference, National Order of Women Legislators Conference, Grocery Manufacturers Association/Food Marketing Institute Environmental Affairs Conference, Keep America Beautiful=s Annual Convention, the Rotary Club of Rockford, Illinois (the world=s largest Rotary Club) and Rotary One in Chicago (the world=s first Rotary Club).

Mr. Bast has been recognized frequently for his contributions to public policy research and debate, including being named one of "The 88 to Watch in 1988" by the Chicago Tribune; recipient of the 1994 Roe Award from the State Policy Network; commissioned a Kentucky Colonel by Gov. Paul E. Patton on June 19, 1996; recipient of the 1996 Sir Antony Fisher International Memorial Award for Eco-Sanity: A Common-Sense Guide to Environmentalism (with coauthors); and recipient of the 1998 Eagle Award from Eagle Forum.

Heartland Biographies

Dr. Jay H. Lehr

Science Director

Dr. Jay Lehr is Science Director of The Heartland Institute, an independent nonprofit organization based in Chicago. He is an internationally renowned speaker, scientist, and author who has testified before Congress on more than three dozen occasions on environmental issues, and consulted with nearly every agency of the federal government and with many foreign countries.

Dr. Lehr is a leading authority on groundwater hydrology. After graduating from Princeton University at the age of 20 with a degree in Geological Engineering, he went on to receive the nation=s first Ph.D. in Groundwater Hydrology from the University of Arizona. He later became Executive Director of the National Water Well Association and the Association of Groundwater Scientists and Engineers.

Dr. Lehr is the author of over 400 magazine and journal articles and 12 books. He is editor of Rational Readings on Environmental Concerns, a 900-page textbook now in its third printing. He recently edited McGraw-Hill=s Handbook on Environmental Science, Health and Technology (2000), a major and highly respected reference work.